ISA 705 (Revised)

Issued April 2015;

updated July 2018

International Standard on Auditing™

Modifications to the Opinion in

the Independent Auditor’s
Report
 INTERNATIONAL STANDARD ON AUDITING 705 (REVISED)
MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S
REPORT
The Malaysian Institute of Accountants has approved this standard in July 2018 for publication.
This standard should be read in conjunction with the Preface to the Malaysian Quality Control,
Auditing, Review, Other Assurance and Related Services Pronouncements; and the
Malaysian Approved Preface to the International Quality Control, Auditing, Review, Other
Assurance, and Related Services Pronouncements; Glossary of Terms; and International
Framework for Assurance Engagements.
The status of International Standards on Auditing is set out in the Preface to the Malaysian
Quality Control, Auditing, Review, Other Assurance and Related Services Pronouncements.

Applicability
International Standards on Auditing are to be applied in the audit of historical financial
information.

Changes of substance from April 2015

1. Conforming amendments have been made to this Standard as a result of:
(a) ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information
and Related Conforming Amendments and those amendments are effective for
audits of financial statements for periods ending on or after 15 December 2016.
The conforming amendments are set out in ISA 720 (Revised) issued in July 2015.
(b) Addressing Disclosures in the Audit of Financial Statements – Revised ISAs and
Related Conforming Amendments and those amendments are effective for audits
of financial statements for periods ending on or after 15 December 2016. The
changes are set out in Addressing Disclosures in the Audit of Financial Statements
issued in October 2015.
2. Changes made as appropriate, for cross-referencing and other changes as necessary.

Effective Date in Malaysia

This ISA is effective for audits of financial statements for periods ending on or after 15
December 2016.

Copyright © December 2016 by the International Federation of Accountants (IFAC). All rights
reserved. Used with permission of IFAC. Contact [email protected] for permission to
reproduce, store or transmit, or to make other similar uses of this document.

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 INTERNATIONAL STANDARD ON AUDITING 705 (REVISED)
MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S
REPORT
(Effective for audits of financial statements for periods
ending on or after December 15, 2016)

CONTENTS
Paragraphs
Introduction
Scope of this ISA ............................................................................................................. 1
Types of Modified Opinions ............................................................................................. 2
Effective Date .................................................................................................................. 3
Objective ........................................................................................................................ 4
Definitions ...................................................................................................................... 5
Requirements
Circumstances When a Modification to the Auditor’s
Opinion Is Required .................................................................................................. 6
Determining the Type of Modification to the Auditor’s Opinion ....................................... 715
Form and Content of the Auditor’s Report When the
Opinion Is Modified ................................................................................................... 1629
Communication with Those Charged with Governance .................................................. 30
Application and Other Explanatory Material
Types of Modified Opinions ............................................................................................. A1
Circumstances When a Modification to the Auditor’s Opinion
Is Required ............................................................................................................... A2A12
Determining the Type of Modification to the Auditor’s Opinion ........................................ A13A16
Form and Content of the Auditor’s Report When the
Opinion Is Modified ................................................................................................... A17A26
Communication with Those Charged with Governance .................................................. A27
Appendix: Illustrations of Auditor’s Reports with Modifications
to the Opinion

International Standard on Auditing (ISA) 705 (Revised), Modifications to the Opinion in the
Independent Auditor’s Report, should be read in conjunction with ISA 200, Overall Objectives of
the Independent Auditor and the Conduct of an Audit in Accordance with International Standards
on Auditing.

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Introduction
Scope of this ISA
1. This International Standard on Auditing (ISA) deals with the auditor’s responsibility to issue an
appropriate report in circumstances when, in forming an opinion in accordance with ISA 700
(Revised),1 the auditor concludes that a modification to the auditor’s opinion on the financial
statements is necessary. This ISA also deals with how the form and content of the auditor’s report
is affected when the auditor expresses a modified opinion. In all cases, the reporting requirements
in ISA 700 (Revised) apply, and are not repeated in this ISA unless they are explicitly addressed
or amended by the requirements of this ISA.

Types of Modified Opinions

2. This ISA establishes three types of modified opinions, namely, a qualified opinion, an adverse
opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is
appropriate depends upon:
(a) The nature of the matter giving rise to the modification, that is, whether the financial
statements are materially misstated or, in the case of an inability to obtain sufficient
appropriate audit evidence, may be materially misstated; and
(b) The auditor’s judgment about the pervasiveness of the effects or possible effects of the
matter on the financial statements. (Ref: Para. A1)

Effective Date
3. This ISA is effective for audits of financial statements for periods ending on or after December
15, 2016.

Objective
4. The objective of the auditor is to express clearly an appropriately modified opinion on the financial
statements that is necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the financial statements
as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement.

Definitions
5. For purposes of the ISAs, the following terms have the meanings attributed below:
(a) Pervasive – A term used, in the context of misstatements, to describe the effects on the
financial statements of misstatements or the possible effects on the financial statements of
misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate
audit evidence. Pervasive effects on the financial statements are those that, in the auditor’s
judgment:
(i) Are not confined to specific elements, accounts or items of the financial statements;
(ii) If so confined, represent or could represent a substantial proportion of the financial
statements; or
(iii) In relation to disclosures, are fundamental to users’ understanding of the financial
statements.
(b) Modified opinion – A qualified opinion, an adverse opinion or a disclaimer of opinion on the
financial statements.

1
ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Requirements
Circumstances When a Modification to the Auditor’s Opinion Is Required
6. The auditor shall modify the opinion in the auditor’s report when:
(a) The auditor concludes that, based on the audit evidence obtained, the financial statements
as a whole are not free from material misstatement; or (Ref: Para. A2–A7)
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement. (Ref: Para. A8–A12)

Determining the Type of Modification to the Auditor’s Opinion

Qualified Opinion
7. The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive.

Adverse Opinion
8. The auditor shall express an adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are
both material and pervasive to the financial statements.

Disclaimer of Opinion
9. The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the auditor concludes that the possible effects
on the financial statements of undetected misstatements, if any, could be both material and
pervasive.
10. The auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple
uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate
audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion
on the financial statements due to the potential interaction of the uncertainties and their possible
cumulative effect on the financial statements.

Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-

Imposed Limitation after the Auditor Has Accepted the Engagement
11. If, after accepting the engagement, the auditor becomes aware that management has imposed a
limitation on the scope of the audit that the auditor considers likely to result in the need to express
a qualified opinion or to disclaim an opinion on the financial statements, the auditor shall request
that management remove the limitation.
12. If management refuses to remove the limitation referred to in paragraph 11 of this ISA, the auditor
shall communicate the matter to those charged with governance, unless all of those charged with
governance are involved in managing the entity,2 and determine whether it is possible to perform
alternative procedures to obtain sufficient appropriate audit evidence.
13. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine
the implications as follows:
(a) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive, the auditor shall qualify the
opinion; or

2
ISA 260 (Revised), Communication with Those Charged with Governance, paragraph 13

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

(b) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the
opinion would be inadequate to communicate the gravity of the situation, the auditor shall:
(i) Withdraw from the audit, where practicable and possible under applicable law or
regulation; or (Ref: Para. A13)
(ii) If withdrawal from the audit before issuing the auditor’s report is not practicable or
possible, disclaim an opinion on the financial statements. (Ref. Para. A14)
14. If the auditor withdraws as contemplated by paragraph 13(b)(i), before withdrawing, the auditor
shall communicate to those charged with governance any matters regarding misstatements
identified during the audit that would have given rise to a modification of the opinion. (Ref: Para.
A15)

Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion

15. When the auditor considers it necessary to express an adverse opinion or disclaim an opinion on
the financial statements as a whole, the auditor’s report shall not also include an unmodified
opinion with respect to the same financial reporting framework on a single financial statement or
one or more specific elements, accounts or items of a financial statement. To include such an
unmodified opinion in the same report3 in these circumstances would contradict the auditor’s
adverse opinion or disclaimer of opinion on the financial statements as a whole. (Ref: Para. A16)

Form and Content of the Auditor’s Report When the Opinion Is Modified
Auditor’s Opinion
16. When the auditor modifies the audit opinion, the auditor shall use the heading “Qualified Opinion,”
“Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the Opinion section. (Ref: Para.
A17–A19)

Qualified Opinion
17. When the auditor expresses a qualified opinion due to a material misstatement in the financial
statements, the auditor shall state that, in the auditor’s opinion, except for the effects of the
matter(s) described in the Basis for Qualified Opinion section:
(a) When reporting in accordance with a fair presentation framework, the accompanying
financial statements present fairly, in all material respects (or give a true and fair view of)
[…] in accordance with [the applicable financial reporting framework]; or
(b) When reporting in accordance with a compliance framework, the accompanying financial
statements have been prepared, in all material respects, in accordance with [the applicable
financial reporting framework].
When the modification arises from an inability to obtain sufficient appropriate audit evidence,
the auditor shall use the corresponding phrase “except for the possible effects of the matter(s)
...” for the modified opinion. (Ref: Para. A20)

Adverse Opinion
18. When the auditor expresses an adverse opinion, the auditor shall state that, in the auditor’s
opinion, because of the significance of the matter(s) described in the Basis for Adverse Opinion
section:
(a) When reporting in accordance with a fair presentation framework, the accompanying
financial statements do not present fairly (or give a true and fair view of) […] in accordance
with [the applicable financial reporting framework]; or

3
ISA 805 (Revised), Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or
Items of a Financial Statement, deals with circumstances where the auditor is engaged to express a separate opinion on
one or more specific elements, accounts or items of a financial statement.

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

(b) When reporting in accordance with a compliance framework, the accompanying financial
statements have not been prepared, in all material respects, in accordance with [the
applicable financial reporting framework].

Disclaimer of Opinion
19. When the auditor disclaims an opinion due to an inability to obtain sufficient appropriate audit
evidence, the auditor shall:
(a) State that the auditor does not express an opinion on the accompanying financial
statements;
(b) State that, because of the significance of the matter(s) described in the Basis for Disclaimer
of Opinion section, the auditor has not been able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion on the financial statements; and
(c) Amend the statement required by paragraph 24(b) of ISA 700 (Revised), which indicates
that the financial statements have been audited, to state that the auditor was engaged to
audit the financial statements.

Basis for Opinion

20. When the auditor modifies the opinion on the financial statements, the auditor shall, in addition to
the specific elements required by ISA 700 (Revised): (Ref: Para. A21)
(a) Amend the heading “Basis for Opinion” required by paragraph 28 of ISA 700 (Revised) to
“Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of
Opinion,” as appropriate; and
(b) Within this section, include a description of the matter giving rise to the modification.
21. If there is a material misstatement of the financial statements that relates to specific amounts in
the financial statements (including quantitative disclosures), the auditor shall include in the Basis
for Opinion section a description and quantification of the financial effects of the misstatement,
unless impracticable. If it is not practicable to quantify the financial effects, the auditor shall so
state in this section. (Ref: Para. A22)
22. If there is a material misstatement of the financial statements that relates to qualitative
disclosures, the auditor shall include in the Basis for Opinion section an explanation of how the
disclosures are misstated.
23. If there is a material misstatement of the financial statements that relates to the non-disclosure of
information required to be disclosed, the auditor shall:
(a) Discuss the non-disclosure with those charged with governance;
(b) Describe in the Basis for Opinion section the nature of the omitted information; and
(c) Unless prohibited by law or regulation, include the omitted disclosures, provided it is
practicable to do so and the auditor has obtained sufficient appropriate audit evidence
about the omitted information. (Ref: Para. A23)
24. If the modification results from an inability to obtain sufficient appropriate audit evidence, the
auditor shall include in the Basis for Opinion section the reasons for that inability.
25. When the auditor expresses a qualified or adverse opinion, the auditor shall amend the statement
about whether the audit evidence obtained is sufficient and appropriate to provide a basis for the
auditor’s opinion required by paragraph 28(d) of ISA 700 (Revised) to include the word “qualified”
or “adverse”, as appropriate.
26. When the auditor disclaims an opinion on the financial statements, the auditor’s report shall not
include the elements required by paragraphs 28(b) and 28(d) of ISA 700 (Revised). Those
elements are:
(a) A reference to the section of the auditor’s report where the auditor’s responsibilities are
described; and

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

(b) A statement about whether the audit evidence obtained is sufficient and appropriate to
provide a basis for the auditor’s opinion.
27. Even if the auditor has expressed an adverse opinion or disclaimed an opinion on the financial
statements, the auditor shall describe in the Basis for Opinion section the reasons for any other
matters of which the auditor is aware that would have required a modification to the opinion, and
the effects thereof. (Ref: Para. A24)

Description of Auditor’s Responsibilities for the Audit of the Financial Statements When the Auditor
Disclaims an Opinion on the Financial Statements
28. When the auditor disclaims an opinion on the financial statements due to an inability to obtain
sufficient appropriate audit evidence, the auditor shall amend the description of the auditor’s
responsibilities required by paragraphs 39–41 of ISA 700 (Revised) to include only the following:
(Ref: Para. A25)
(a) A statement that the auditor’s responsibility is to conduct an audit of the entity’s financial
statements in accordance with International Standards on Auditing and to issue an auditor’s
report;
(b) A statement that, however, because of the matter(s) described in the Basis for Disclaimer
of Opinion section, the auditor was not able to obtain sufficient appropriate audit evidence
to provide a basis for an audit opinion on the financial statements; and
(c) The statement about auditor independence and other ethical responsibilities required by
paragraph 28(c) of ISA 700 (Revised).

Considerations When the Auditor Disclaims an Opinion on the Financial Statements

29. Unless required by law or regulation, when the auditor disclaims an opinion on the financial
statements, the auditor’s report shall not include a Key Audit Matters section in accordance with
ISA 701 or an Other Information section in accordance with ISA 720 (Revised).4,5 (Ref: Para.
A26)

Communication with Those Charged with Governance

30. When the auditor expects to modify the opinion in the auditor’s report, the auditor shall
communicate with those charged with governance the circumstances that led to the expected
modification and the wording of the modification. (Ref: Para. A27)
***

Application and Other Explanatory Material

Types of Modified Opinions (Ref: Para. 2)
A1. The table below illustrates how the auditor’s judgment about the nature of the matter giving rise
to the modification, and the pervasiveness of its effects or possible effects on the financial
statements, affects the type of opinion to be expressed.

Auditor’s Judgment about the Pervasiveness of the Effects or

Possible Effects on the Financial Statements
Nature of Matter
Giving Rise to the Material but Not Material and Pervasive
Modification Pervasive
Financial
statements are
Qualified opinion Adverse opinion
materially
misstated

4
ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, paragraphs 11–13
5
ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information, paragraph A54

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Inability to obtain
sufficient
Qualified opinion Disclaimer of opinion
appropriate audit
evidence

Circumstances When a Modification to the Auditor’s Opinion Is Required

Nature of Material Misstatements (Ref: Para. 6(a))
A2. ISA 700 (Revised) requires the auditor, in order to form an opinion on the financial statements,
to conclude as to whether reasonable assurance has been obtained about whether the financial
statements as a whole are free from material misstatement. 6 This conclusion takes into account
the auditor’s evaluation of uncorrected misstatements, if any, on the financial statements in
accordance with ISA 450.7
A3. ISA 450 defines a misstatement as a difference between the reported amount, classification,
presentation, or disclosure of a financial statement item and the amount, classification,
presentation, or disclosure that is required for the item to be in accordance with the applicable
financial reporting framework. Accordingly, a material misstatement of the financial statements
may arise in relation to:
(a) The appropriateness of the selected accounting policies;
(b) The application of the selected accounting policies; or
(c) The appropriateness or adequacy of disclosures in the financial statements.

Appropriateness of the Selected Accounting Policies

A4. In relation to the appropriateness of the accounting policies management has selected, material
misstatements of the financial statements may arise for example when:
(a) The selected accounting policies are not consistent with the applicable financial reporting
framework;
(b) The financial statements do not correctly describe an accounting policy relating to a
significant item in the statement of financial position, the statement of comprehensive income,
the statement of changes in equity or the statement of cash flows; or
(c) The financial statements do not represent or disclose the underlying transactions and events
in a manner that achieves fair presentation.
A5. Financial reporting frameworks often contain requirements for the accounting for, and
disclosure of, changes in accounting policies. Where the entity has changed its selection of
significant accounting policies, a material misstatement of the financial statements may arise
when the entity has not complied with these requirements.

Application of the Selected Accounting Policies

A6. In relation to the application of the selected accounting policies, material misstatements of the
financial statements may arise:
(a) When management has not applied the selected accounting policies consistently with the
financial reporting framework, including when management has not applied the selected
accounting policies consistently between periods or to similar transactions and events
(consistency in application); or
(b) Due to the method of application of the selected accounting policies (such as an
unintentional error in application).

6
ISA 700 (Revised), paragraph 11
7
ISA 450, Evaluation of Misstatements Identified during the Audit, paragraph 11

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Appropriateness or Adequacy of Disclosures in the Financial Statements

A7. In relation to the appropriateness or adequacy of disclosures in the financial statements,
material misstatements of the financial statements may arise when:
(a) The financial statements do not include all of the disclosures required by the applicable
financial reporting framework;
(b) The disclosures in the financial statements are not presented in accordance with the
applicable financial reporting framework; or
(c) The financial statements do not provide the additional disclosures necessary to achieve
fair presentation beyond disclosures specifically required by the applicable financial
reporting framework.
Paragraph A13a of ISA 450 provides further examples of material misstatements in qualitative
disclosures that may arise.

Nature of an Inability to Obtain Sufficient Appropriate Audit Evidence (Ref: Para. 6(b))
A8. The auditor’s inability to obtain sufficient appropriate audit evidence (also referred to as a
limitation on the scope of the audit) may arise from:
(a) Circumstances beyond the control of the entity;
(b) Circumstances relating to the nature or timing of the auditor’s work; or
(c) Limitations imposed by management.
A9. An inability to perform a specific procedure does not constitute a limitation on the scope of the
audit if the auditor is able to obtain sufficient appropriate audit evidence by performing
alternative procedures. If this is not possible, the requirements of paragraphs 7(b) and 9–10
apply as appropriate. Limitations imposed by management may have other implications for the
audit, such as for the auditor’s assessment of fraud risks and consideration of engagement
continuance.
A10. Examples of circumstances beyond the control of the entity include when:
 The entity’s accounting records have been destroyed.
 The accounting records of a significant component have been seized indefinitely by
governmental authorities.
A11. Examples of circumstances relating to the nature or timing of the auditor’s work include when:
 The entity is required to use the equity method of accounting for an associated entity,
and the auditor is unable to obtain sufficient appropriate audit evidence about the latter’s
financial information to evaluate whether the equity method has been appropriately
applied.
 The timing of the auditor’s appointment is such that the auditor is unable to observe the
counting of the physical inventories.
 The auditor determines that performing substantive procedures alone is not sufficient,
but the entity’s controls are not effective.
A12. Examples of an inability to obtain sufficient appropriate audit evidence arising from a limitation
on the scope of the audit imposed by management include when:
 Management prevents the auditor from observing the counting of the physical inventory.
 Management prevents the auditor from requesting external confirmation of specific
account balances.

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Determining the Type of Modification to the Auditor’s Opinion

Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-
Imposed Limitation after the Auditor Has Accepted the Engagement (Ref: Para. 13(b)(i)–14)
A13. The practicality of withdrawing from the audit may depend on the stage of completion of the
engagement at the time that management imposes the scope limitation. If the auditor has
substantially completed the audit, the auditor may decide to complete the audit to the extent
possible, disclaim an opinion and explain the scope limitation within the Basis for Disclaimer of
Opinion section prior to withdrawing.
A14. In certain circumstances, withdrawal from the audit may not be possible if the auditor is required
by law or regulation to continue the audit engagement. This may be the case for an auditor that
is appointed to audit the financial statements of public sector entities. It may also be the case
in jurisdictions where the auditor is appointed to audit the financial statements covering a
specific period, or appointed for a specific period and is prohibited from withdrawing before the
completion of the audit of those financial statements or before the end of that period,
respectively. The auditor may also consider it necessary to include an Other Matter paragraph
in the auditor’s report.8
A15. When the auditor concludes that withdrawal from the audit is necessary because of a scope
limitation, there may be a professional, legal or regulatory requirement for the auditor to
communicate matters relating to the withdrawal from the engagement to regulators or the
entity’s owners.

Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion (Ref: Para. 15)
A16. The following are examples of reporting circumstances that would not contradict the auditor’s
adverse opinion or disclaimer of opinion:
 The expression of an unmodified opinion on financial statements prepared under a given
financial reporting framework and, within the same report, the expression of an adverse
opinion on the same financial statements under a different financial reporting framework.9
 The expression of a disclaimer of opinion regarding the results of operations, and cash
flows, where relevant, and an unmodified opinion regarding the financial position (see
ISA 51010). In this case, the auditor has not expressed a disclaimer of opinion on the
financial statements as a whole.

Form and Content of the Auditor’s Report When the Opinion Is Modified
Illustrative Auditor’s Reports (Ref: Para. 16)
A17. Illustrations 1 and 2 in the Appendix contain auditor’s reports with qualified and adverse
opinions, respectively, as the financial statements are materially misstated.
A18. Illustration 3 in the Appendix contains an auditor’s report with a qualified opinion as the auditor
is unable to obtain sufficient appropriate audit evidence. Illustration 4 contains a disclaimer of
opinion due to an inability to obtain sufficient appropriate audit evidence about a single element
of the financial statements. Illustration 5 contains a disclaimer of opinion due to an inability to
obtain sufficient appropriate audit evidence about multiple elements of the financial statements.
In each of the latter two cases, the possible effects on the financial statements of the inability
are both material and pervasive. The Appendices to other ISAs that include reporting
requirements, including ISA 570 (Revised), 11 also include illustrations of auditor’s reports with
modified opinions.

8
ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report,
paragraph A10
9
See paragraph A31 of ISA 700 (Revised) for a description of this circumstance.
10
ISA 510, Initial Audit Engagements―Opening Balances, paragraph 10
11
ISA 570 (Revised), Going Concern

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Auditor’s Opinion (Ref: Para. 16)

A19. Amending this heading makes it clear to the user that the auditor’s opinion is modified and
indicates the type of modification.

Qualified Opinion (Ref: Para. 17)

A20. When the auditor expresses a qualified opinion, it would not be appropriate to use phrases
such as “with the foregoing explanation” or “subject to” in the Opinion section as these are not
sufficiently clear or forceful.

Basis for Opinion (Ref: Para. 20, 21, 23, 27)

A21. Consistency in the auditor’s report helps to promote users’ understanding and to identify
unusual circumstances when they occur. Accordingly, although uniformity in the wording of a
modified opinion and in the description of the reasons for the modification may not be possible,
consistency in both the form and content of the auditor’s report is desirable.
A22. An example of the financial effects of material misstatements that the auditor may describe
within the Basis for Opinion section in the auditor’s report is the quantification of the effects on
income tax, income before taxes, net income and equity if inventory is overstated.
A23. Disclosing the omitted information within the Basis for Opinion section would not be practicable
if:
(a) The disclosures have not been prepared by management or the disclosures are otherwise
not readily available to the auditor; or
(b) In the auditor’s judgment, the disclosures would be unduly voluminous in relation to the
auditor’s report.
A24. An adverse opinion or a disclaimer of opinion relating to a specific matter described within the
Basis for Opinion section does not justify the omission of a description of other identified
matters that would have otherwise required a modification of the auditor’s opinion. In such
cases, the disclosure of such other matters of which the auditor is aware may be relevant to
users of the financial statements.

Description of Auditor’s Responsibilities for the Audit of the Financial Statements When the Auditor
Disclaims an Opinion on the Financial Statements (Ref: Para. 28)
A25. When the auditor disclaims an opinion on the financial statements, the following statements
are better positioned within the Auditor’s Responsibilities for the Audit of the Financial
Statements section of the auditor’s report, as illustrated in Illustrations 4–5 of the Appendix to
this ISA:
 The statement required by paragraph 28(a) of ISA 700 (Revised), amended to state that
the auditor’s responsibility is to conduct an audit of the entity’s financial statements in
accordance with ISAs; and
 The statement required by paragraph 28(c) of ISA 700 (Revised) about independence
and other ethical responsibilities.

Considerations When the Auditor Disclaims an Opinion on the Financial Statements (Ref: Para. 29)
A26. Providing the reasons for the auditor’s inability to obtain sufficient appropriate audit evidence
within the Basis for Disclaimer of Opinion section of the auditor’s report provides useful
information to users in understanding why the auditor has disclaimed an opinion on the financial
statements and may further guard against inappropriate reliance on them. However,
communication of any key audit matters other than the matter(s) giving rise to the disclaimer of
opinion may suggest that the financial statements as a whole are more credible in relation to
those matters than would be appropriate in the circumstances, and would be inconsistent with
the disclaimer of opinion on the financial statements as a whole. Similarly, it would not be
appropriate to include an Other Information section in accordance with ISA 720 (Revised)
addressing the auditor’s consideration of the consistency of the other information with the
financial statements. Accordingly, paragraph 29 of this ISA prohibits a Key Audit Matters section

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 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

or an Other Information section from being included in the auditor’s report when the auditor
disclaims an opinion on the financial statements, unless the auditor is otherwise required by
law or regulation to communicate key audit matters or to report on other information.

Communication with Those Charged with Governance (Ref: Para. 30)

A27. Communicating with those charged with governance the circumstances that lead to an
expected modification to the auditor’s opinion and the wording of the modification enables:
(a) The auditor to give notice to those charged with governance of the intended modification(s)
and the reasons (or circumstances) for the modification(s);
(b) The auditor to seek the concurrence of those charged with governance regarding the facts
of the matter(s) giving rise to the expected modification(s), or to confirm matters of
disagreement with management as such; and
(c) Those charged with governance to have an opportunity, where appropriate, to provide the
auditor with further information and explanations in respect of the matter(s) giving rise to
the expected modification(s).

12
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Appendix
(Ref: Para. A17–A18, A25)

Illustrations of Independent Auditor’s Reports with Modifications to the

Opinion
 Illustration 1: An auditor’s report containing a qualified opinion due to a material misstatement of
the financial statements.
 Illustration 2: An auditor’s report containing an adverse opinion due to a material misstatement of
the consolidated financial statements.
 Illustration 3: An auditor’s report containing a qualified opinion due to the auditor’s inability to
obtain sufficient appropriate audit evidence regarding a foreign associate.
 Illustration 4: An auditor’s report containing a disclaimer of opinion due to the auditor’s inability to
obtain sufficient appropriate audit evidence about a single element of the consolidated financial
statements.
 Illustration 5: An auditor’s report containing a disclaimer of opinion due to the auditor’s inability to
obtain sufficient appropriate audit evidence about multiple elements of the financial statements.

13
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Illustration 1 – Qualified Opinion due to a Material Misstatement of the Financial Statements

For purposes of this illustrative auditor’s report, the following circumstances are assumed:
 Audit of a complete set of financial statements of a listed entity using a fair
presentation framework. The audit is not a group audit (i.e., ISA 600 1 does not apply).
 The financial statements are prepared by management of the entity in accordance with
IFRSs (a general purpose framework).
 The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in ISA 210. 2
 Inventories are misstated. The misstatement is deemed to be material but not
pervasive to the financial statements (i.e., a qualified opinion is appropriate).
 The relevant ethical requirements that apply to the audit are those of the jurisdiction.
 Based on the audit evidence obtained, the auditor has concluded that a material
uncertainty does not exist related to events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern in accordance with ISA 570
(Revised).
 Key audit matters have been communicated in accordance with ISA 701.
 The auditor has obtained all of the other information prior to the date of the auditor’s
report and the matter giving rise to the qualified opinion on the consolidated financial
statements also affects the other information.
 Those responsible for oversight of the financial statements differ from those responsible
for the preparation of the financial statements.
 In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee]

Report on the Audit of the Financial Statements3

Qualified Opinion
We have audited the financial statements of ABC Company (the Company), which comprise the
statement of financial position as at December 31, 20X1, and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the year then ended, and notes to the
financial statements, including a summary of significant accounting policies.
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section
of our report, the accompanying financial statements present fairly, in all material respects, (or give a
true and fair view of) the financial position of the Company as at December 31, 20X1, and (of) its
financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRSs).

Basis for Qualified Opinion

The Company’s inventories are carried in the statement of financial position at xxx. Management has
not stated the inventories at the lower of cost and net realizable value but has stated them solely at
cost, which constitutes a departure from IFRSs. The Company’s records indicate that, had management
stated the inventories at the lower of cost and net realizable value, an amount of xxx would have been
required to write the inventories down to their net realizable value. Accordingly, cost of sales would have
been increased by xxx, and income tax, net income and shareholders’ equity would have been reduced
by xxx, xxx and xxx, respectively.

1
ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)
2
ISA 210, Agreeing the Terms of Audit Engagements
3
The sub-title “Report on the Audit of the Financial Statements” is unnecessary in circumstances when the second sub-title
“Report on Other Legal and Regulatory Requirements” is not applicable.

14
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in
[jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our qualified opinion.

Other Information [or other title if appropriate such as “Information Other that the Financial
Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements of ISA 720 (Revised) – see Illustration 6 in
Appendix 2 of ISA 720 (Revised). The last paragraph of the other information section in Illustration 6 would
be customized to describe the specific matter giving rise to the qualified opinion that also affects the other
information.]

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified
Opinion section we have determined the matters described below to be the key audit matters to be
communicated in our report.
[Description of each key audit matter in accordance with ISA 701.]

Responsibilities of Management and Those Charged with Governance for the Financial
Statements4
[Reporting in accordance with ISA 700 (Revised) – see Illustration 1 in ISA 700 (Revised).]

Auditor’s Responsibilities for the Audit of the Financial Statements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 1 in ISA 700 (Revised).]

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 1 in ISA 700 (Revised).]
The engagement partner on the audit resulting in this independent auditor’s report is [name].
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for
the particular jurisdiction]
[Auditor Address]
[Date]

4
Throughout the illustrative auditor’s reports, the terms management and those charged with governance may need to be
replaced by another term that is appropriate in the context of the legal framework in the particular jurisdiction.

15
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Illustration 2 – Adverse Opinion due to a Material Misstatement of the Consolidated Financial

Statements
For purposes of this illustrative auditor’s report, the following circumstances are assumed:
 Audit of a complete set of consolidated financial statements of a listed entity using a
fair presentation framework. The audit is a group audit of an entity with subsidiaries
(i.e., ISA 600 applies).
 The consolidated financial statements are prepared by management of the entity in
accordance with IFRSs (a general purpose framework).
 The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in ISA 210.
 The consolidated financial statements are materially misstated due to the non-
consolidation of a subsidiary. The material misstatement is deemed to be pervasive to
the consolidated financial statements. The effects of the misstatement on the
consolidated financial statements have not been determined because it was not
practicable to do so (i.e., an adverse opinion is appropriate).
 The relevant ethical requirements that apply to the audit are those of the jurisdiction.
 Based on the audit evidence obtained, the auditor has concluded that a material
uncertainty does not exist related to events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern in accordance with ISA 570
(Revised).
 ISA 701 applies; however, the auditor has determined that there are no key audit matters
other than the matter described in the Basis for Adverse Opinion section.
 The auditor has obtained all of the other information prior to the date of the auditor’s
report and the matter giving rise to the adverse opinion on the consolidated financial
statements also affects the other information.
 Those responsible for oversight of the consolidated financial statements differ from those
responsible for the preparation of the consolidated financial statements.
 In addition to the audit of the consolidated financial statements, the auditor has other
reporting responsibilities required under local law.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee]

Report on the Audit of the Consolidated Financial Statements5

Adverse Opinion
We have audited the consolidated financial statements of ABC Company and its subsidiaries (the
Group), which comprise the consolidated statement of financial position as at December 31, 20X1, and
the consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion
section of our report, the accompanying consolidated financial statements do not present fairly (or do
not give a true and fair view of) the consolidated financial position of the Group as at December 31,
20X1, and (of) its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Adverse Opinion

As explained in Note X, the Group has not consolidated subsidiary XYZ Company that the Group
acquired during 20X1 because it has not yet been able to determine the fair values of certain of the
subsidiary’s material assets and liabilities at the acquisition date. This investment is therefore accounted

5
The sub-title “Report on the Audit of the Consolidated Financial Statements” is unnecessary in circumstances when the
second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.

16
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

for on a cost basis. Under IFRSs, the Company should have consolidated this subsidiary and accounted
for the acquisition based on provisional amounts. Had XYZ Company been consolidated, many
elements in the accompanying consolidated financial statements would have been materially affected.
The effects on the consolidated financial statements of the failure to consolidate have not been
determined.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Group
in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our adverse opinion.

Other Information [or another title if appropriate such as “Information Other than the Financial
Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in ISA 720 (Revised) – see Illustration 7 in
Appendix 2 of ISA 720 (Revised). The last paragraph of the other information section in Illustration 7
would be customized to describe the specific matter giving rise to the qualified opinion that also affects
the other information.]

Key Audit Matters

Except for the matter described in the Basis for Adverse Opinion section, we have determined that there
are no other key audit matters to communicate in our report.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements6
[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]
The engagement partner on the audit resulting in this independent auditor’s report is [name].
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for
the particular jurisdiction]
[Auditor Address]
[Date]

6
Or other terms that are appropriate in the context of the legal framework in the particular jurisdiction

17
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Illustration 3 – Qualified Opinion due to the Auditor’s Inability to Obtain Sufficient Audit
Evidence Regarding a Foreign Associate
For purposes of this illustrative auditor’s report, the following circumstances are assumed:
 Audit of a complete set of consolidated financial statements of a listed entity using a
fair presentation framework. The audit is a group audit of an entity with subsidiaries
(i.e., ISA 600 applies).
 The consolidated financial statements are prepared by management of the entity in
accordance with IFRSs (a general purpose framework).
 The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in ISA 210.
 The auditor was unable to obtain sufficient appropriate audit evidence regarding an
investment in a foreign associate. The possible effects of the inability to obtain
sufficient appropriate audit evidence are deemed to be material but not pervasive to
the consolidated financial statements (i.e., a qualified opinion is appropriate).
 The relevant ethical requirements that apply to the audit are those of the jurisdiction.
 Based on the audit evidence obtained, the auditor has concluded that a material
uncertainty does not exist related to events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern in accordance with ISA 570
(Revised).
 Key audit matters have been communicated in accordance with ISA 701.
 The auditor has obtained all of the other information prior to the date of the auditor’s
report and the matter giving rise to the qualified opinion on the consolidated financial
statements also affects the other information.
 Those responsible for oversight of the consolidated financial statements differ from those
responsible for the preparation of the consolidated financial statements.
 In addition to the audit of the consolidated financial statements, the auditor has other
reporting responsibilities required under local law.

18
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee]

Report on the Audit of the Consolidated Financial Statements7

Qualified Opinion
We have audited the consolidated financial statements of ABC Company and its subsidiaries (the
Group), which comprise the consolidated statement of financial position as at December 31, 20X1, and
the consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion
section of our report, the accompanying consolidated financial statements present fairly, in all material
respects, (or give a true and fair view of) the financial position of the Group as at December 31, 20X1,
and (of) its consolidated financial performance and its consolidated cash flows for the year then ended
in accordance with International Financial Reporting Standards (IFRSs).

Basis for Qualified Opinion

The Group’s investment in XYZ Company, a foreign associate acquired during the year and accounted
for by the equity method, is carried at xxx on the consolidated statement of financial position as at
December 31, 20X1, and ABC’s share of XYZ’s net income of xxx is included in ABC’s income for the
year then ended. We were unable to obtain sufficient appropriate audit evidence about the carrying
amount of ABC’s investment in XYZ as at December 31, 20X1 and ABC’s share of XYZ’s net income
for the year because we were denied access to the financial information, management, and the auditors
of XYZ. Consequently, we were unable to determine whether any adjustments to these amounts were
necessary.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in [jurisdiction], and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Other Information [or another title if appropriate such as “Information Other than the Financial
Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements of ISA 720 (Revised) – see Illustration 6 in
Appendix 2 of ISA 720 (Revised). The last paragraph of the other information section in Illustration 6
would be customized to describe the specific matter giving rise to the qualified opinion that also affects
the other information.]

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. In addition to the matter described
in the Basis for Qualified Opinion section, we have determined the matters described below to be the
key audit matters to be communicated in our report.
[Description of each key audit matter in accordance with ISA 701.]

7
The sub-title “Report on the Audit of the Consolidated Financial Statements” is unnecessary in circumstances when the
second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.

19
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements8
[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]
The engagement partner on the audit resulting in this independent auditor’s report is [name].
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for
the particular jurisdiction]
[Auditor Address]
[Date]

8
Or other terms that are appropriate in the context of the legal framework in the particular jurisdiction

20
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Illustration 4 – Disclaimer of Opinion due to the Auditor’s Inability to Obtain Sufficient

Appropriate Audit Evidence about a Single Element of the Consolidated Financial
Statements
For purposes of this illustrative auditor’s report, the following circumstances are assumed:
 Audit of a complete set of consolidated financial statements of an entity other than a
listed entity using a fair presentation framework. The audit is a group audit of an entity
with subsidiaries (i.e., ISA 600 applies).
 The consolidated financial statements are prepared by management of the entity in
accordance with IFRSs (a general purpose framework).
 The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in ISA 210.
 The auditor was unable to obtain sufficient appropriate audit evidence about a single
element of the consolidated financial statements. That is, the auditor was also unable
to obtain audit evidence about the financial information of a joint venture investment
that represents over 90% of the entity’s net assets. The possible effects of this
inability to obtain sufficient appropriate audit evidence are deemed to be both material
and pervasive to the consolidated financial statements (i.e., a disclaimer of opinion is
appropriate).
 The relevant ethical requirements that apply to the audit are those of the jurisdiction.
 Those responsible for oversight of the consolidated financial statements differ from
those responsible for the preparation of the consolidated financial statements.
 A more limited description of the auditor’s responsibilities section is required.
 In addition to the audit of the consolidated financial statements, the auditor has other
reporting responsibilities required under local law.

21
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee]

Report on the Audit of the Consolidated Financial Statements9

Disclaimer of Opinion
We were engaged to audit the consolidated financial statements of ABC Company and its subsidiaries
(the Group), which comprise the consolidated statement of financial position as at December 31, 20X1,
and the consolidated statement of comprehensive income, consolidated statement of changes in equity
and consolidated statement of cash flows for the year then ended, and notes to the consolidated
financial statements, including a summary of significant accounting policies.
We do not express an opinion on the accompanying consolidated financial statements of the Group.
Because of the significance of the matter described in the Basis for Disclaimer of Opinion section of our
report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an
audit opinion on these consolidated financial statements.

Basis for Disclaimer of Opinion

The Group’s investment in its joint venture XYZ Company is carried at xxx on the Group’s consolidated
statement of financial position, which represents over 90% of the Group’s net assets as at December
31, 20X1. We were not allowed access to the management and the auditors of XYZ Company, including
XYZ Company’s auditors’ audit documentation. As a result, we were unable to determine whether any
adjustments were necessary in respect of the Group’s proportional share of XYZ Company’s assets
that it controls jointly, its proportional share of XYZ Company’s liabilities for which it is jointly responsible,
its proportional share of XYZ’s income and expenses for the year, and the elements making up the
consolidated statement of changes in equity and the consolidated cash flow statement.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements10
[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our responsibility is to conduct an audit of the Group’s consolidated financial statements in accordance
with International Standards on Auditing and to issue an auditor’s report. However, because of the matter
described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these consolidated financial statements.
We are independent of the Group in accordance with the ethical requirements that are relevant to our
audit of the financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities
in accordance with these requirements.

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 2 in ISA 700 (Revised).]
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for
the particular jurisdiction]
[Auditor Address]
[Date]

9
The sub-title “Report on the Audit of the Consolidated Financial Statements” is unnecessary in circumstances when the
second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.
10
Or other terms that are appropriate in the context of the legal framework of the particular jurisdiction

22
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Illustration 5 – Disclaimer of Opinion due to the Auditor’s Inability to Obtain Sufficient

Appropriate Audit Evidence about Multiple Elements of the Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are assumed:
 Audit of a complete set of financial statements of an entity other than a listed entity
using a fair presentation framework. The audit is not a group audit (i.e., ISA 600, does
not apply).
 The financial statements are prepared by management of the entity in accordance
with IFRSs (a general purpose framework).
 The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in ISA 210.
 The auditor was unable to obtain sufficient appropriate audit evidence about multiple
elements of the financial statements, that is, the auditor was also unable to obtain
audit evidence about the entity’s inventories and accounts receivable. The possible
effects of this inability to obtain sufficient appropriate audit evidence are deemed to
be both material and pervasive to the financial statements.
 The relevant ethical requirements that apply to the audit are those of the jurisdiction.
 Those responsible for oversight of the financial statements differ from those responsible
for the preparation of the financial statements.
 A more limited description of the auditor’s responsibilities section is required.
 In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee]

Report on the Audit of the Financial Statements11

Disclaimer of Opinion
We were engaged to audit the financial statements of ABC Company (the Company), which comprise
the statement of financial position as at December 31, 20X1, and the statement of comprehensive
income, statement of changes in equity and statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of significant accounting policies.
We do not express an opinion on the accompanying financial statements of the Company. Because of
the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we
have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion
on these financial statements.

Basis for Disclaimer of Opinion

We were not appointed as auditors of the Company until after December 31, 20X1 and thus did not
observe the counting of physical inventories at the beginning and end of the year. We were unable to
satisfy ourselves by alternative means concerning the inventory quantities held at December 31, 20X0
and 20X1, which are stated in the statements of financial position at xxx and xxx, respectively. In
addition, the introduction of a new computerized accounts receivable system in September 20X1
resulted in numerous errors in accounts receivable. As of the date of our report, management was still
in the process of rectifying the system deficiencies and correcting the errors. We were unable to confirm
or verify by alternative means accounts receivable included in the statement of financial position at a
total amount of xxx as at December 31, 20X1. As a result of these matters, we were unable to determine
whether any adjustments might have been found necessary in respect of recorded or unrecorded
inventories and accounts receivable, and the elements making up the statement of comprehensive
income, statement of changes in equity and statement of cash flows.

11
The sub-title “Report on the Audit of the Financial Statements” is unnecessary in circumstances when the second sub-title
“Report on Other Legal and Regulatory Requirements” is not applicable.

23
 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

Responsibilities of Management and Those Charged with Governance for the Financial
Statements12
[Reporting in accordance with ISA 700 (Revised) – see Illustration 1 in ISA 700 (Revised).]

Auditor’s Responsibilities for the Audit of the Financial Statements

Our responsibility is to conduct an audit of the Company’s financial statements in accordance with
International Standards on Auditing and to issue an auditor’s report. However, because of the matters
described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these financial statements.
We are independent of the Company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in [jurisdiction], and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with ISA 700 (Revised) – see Illustration 1 in ISA 700 (Revised).]
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for
the particular jurisdiction]
[Auditor Address]
[Date]

12
Or other terms that are appropriate in the context of the legal framework of the particular jurisdiction

24
Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Bangsar South City, No.8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia
[phone] +603 2722 9000 [fax] +603 2722 9100
[web] www.mia.ormy [email] [email protected]